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The Nikkei 225 index surged more than 10% on Tuesday, leading the global stock market rebound. With the release of Japan's household income and expenditure data and the strong rebound of the stock market on Tuesday, experts unanimously agreed that there is no economic recession in Europe and the United States, and the theory of the collapse of Japan and the United States has collapsed in one day. The Japanese and American economies, which have not experienced a recession during the interest rate hike cycle, are even less likely to experience a recession due to the positive stimulus of the interest rate cut.

1. The Nikkei 225 index surged more than 10% on Tuesday, leading a rebound in global stock markets.

Global stocks rebounded on Tuesday, led by Japan's Nikkei 225 index, after suffering a historic rout on Monday due to recession fears sparked by weaker-than-expected U.S. jobs market data.

Japan's Nikkei 225 surged more than 10% to 34,260 on Tuesday, while the Tokyo Stock Price Index (TOPIX) rose 8.2%.

The Nikkei's rebound came a day after the benchmark index plunged 12.4% in its worst one-day sell-off since the "Black Monday" crash in 1987.

The Bank of Japan raised interest rates to the highest level since 2008 on July 30, causing the yen to appreciate to a seven-month high and weighing on stocks.

Japan's heavyweight trading houses rebounded more than 6%, with Mitsui & Co. rising more than 9%. Softbank Group Corp. rose more than 8%.

Other sectors that gained included Japanese automakers and semiconductor suppliers such as Honda and Renesas Electronics, which rose more than 13% and 17%, respectively.

The yen fell 0.8% to 145.37 against the dollar on Tuesday after surging 1.5% on Monday.

South Korea's KOSPI index fell 8.8% on Monday, but jumped higher at the opening on Tuesday, and closed up more than 3.3% at 2,522.15 points. The small-cap Kosdaq rose more than 5%. The Korean market was temporarily suspended on Monday after falling 8%, triggering the circuit breaker mechanism.

South Korean heavyweight Samsung Electronics rose 2.1 percent, while chipmaker SK Hynix gained 4.5 percent.

China's CSI 300 index fell 1.2% on Monday after falling 1% on Friday, but was flat on Tuesday. Hong Kong's Hang Seng index rose 0.9% on Tuesday.

Taiwan's weighted index fell 8.4% on Monday and closed up 3.4% on Tuesday. Shares of TSMC, the world's largest chipmaker, fell from 903 on Friday to 815 on Monday and rebounded to 880 on Tuesday, up nearly 8%, recovering nearly 90% of its losses.

The U.S. market also showed signs of recovery on Tuesday. As of 24:00 Beijing time on August 6, the Nasdaq, S&P 500 and Dow Jones rose 1.8%, 1.8% and 1.2%, respectively.

The VIX panic index, often referred to as the market's fear indicator, closed at 25.19 points on Tuesday night, down 34.7% from Tuesday.

The weaker-than-expected U.S. employment report released on Friday sparked fears of a recession. This fragile outlook, coupled with the unwinding of the yen "carry trade," led to a massive sell-off on Wall Street and other global stock markets on Monday.

In the United States, the benchmark S&P 500 and the 30-company Dow Jones Industrial Average fell 3% and 2.6%, respectively, on Monday, their biggest one-day declines since September 2022. The tech-heavy Nasdaq was hit harder by Monday's plunge, falling 3.4%.

2. With Japan releasing household income and expenditure data on Tuesday and the stock market rebounding strongly, experts unanimously agreed that there is no economic recession in Europe and the United States, and the theory of Japan-US collapse was proven wrong overnight.

On Tuesday, the Japanese Statistics Bureau released Japanese household spending data for June 2024. The data showed that after deducting inflation, Japan's average monthly spending fell more than expected year-on-year, down 1.4% in real terms. The average monthly income per household actually increased by 3.1% over the previous year. Japan's CPI rose 2.8% year-on-year in June.

Japan's real wages rose 1.1% year-on-year in June, the first increase in 26 months. Strong wage growth provides more room for the Bank of Japan to tighten monetary policy.

Neil Newman, head of strategy at Astris Advisory in Tokyo, told Nikkei that Japan's stock market rebound is "typical of what happens after a market crash. The important thing is that the fundamentals are good, the economy is doing well, and there is no evidence of a recession in Japan that led to the Japanese stock market crash." Newman also believes that Japanese stocks in particular have been hit hard by the rapid appreciation of the yen, which has weakened the export competitiveness of the country's manufacturers, and the unwinding of yen carry trades has further hit the stock market.

Newman also believes that the panic about the central bank's rate hike decision has been digested, but there are still lingering concerns. The big question now is whether the Bank of Japan will go ahead and raise rates again given all the criticism in the media. I believe they will not be swayed by the public or the news media.

Newman added that more than half of what Japan produces is sold overseas, a process of offshoring that began with U.S. auto production in the 1980s. What matters for small and medium-sized companies, which employ most of Japan's workforce, is the high cost of raw materials and energy, which is exacerbated by a weak yen. That's why the Bank of Japan may face pressure to boost the yen.

Stephen Innes, managing partner of SPI Asset Management, explained that in recent weeks, the Bank of Japan has signaled a hawkish monetary policy bias, forcing many market participants to quickly unwind their yen carry trades, a popular investment strategy. For decades, Japan's extremely low interest rates allowed many investors to borrow cash cheaply there before converting it into other currencies to invest in higher-yielding assets. The unwinding of this strategy was the main trigger for the market turmoil.

Tokyo represents the epicenter of the unwinding of the carry trade, with the ripple effects most pronounced, adding to volatility and uncertainty for traders and investors, Stephen Innes said.

But analysts at UBS Chief Investment Office wrote in a research note on Tuesday that short-term volatility in the stock market remains as the market believes that the dollar has not stabilized against the yen. They said in the note, "It is too early to conclude that the Japanese stock market has bottomed out. The final definitive judgment may need to wait until Japanese companies announce their first-half earnings in October, or even after the US presidential election in November."

Japanese Prime Minister Fumio Kishida said on Tuesday it was important for investors to make calm judgments on market situations, according to Reuters. He was reportedly optimistic about the economic outlook, citing factors such as the first increase in real wages adjusted for inflation in more than two years.

3. The Japanese and American economies, which have not experienced a recession during the interest rate hike cycle, are even less likely to experience a recession now that they are facing the favorable stimulus of an interest rate cut.

But generally speaking, Neil Newman and UBS Chief Investment Office's judgment on the current Japanese and American economies and stock markets is basically consistent with Saburo's view in the article "Does the global stock market crash because the Sam Rule shows the US economic recession?" on the evening of August 5. The difference is that Saburo denied this view on the day when the global stock market crashed and most people believed that the US economic recession caused the stock market crash. Neil Newman and UBS expressed a similar judgment to Saburo after the stock market rebounded on the 6th.

In fact, the monetary policy of raising interest rates on the yen itself means that the Japanese economy is now in an overheated state. Japan's inflation is close to 3%, the dividing line between low inflation and moderate inflation. The Bank of Japan's interest rate hike will nip inflation in the bud, which is conducive to the healthy development of the economy.

At the same time, a strong yen lowers costs, while a weak yen boosts exports, achieving a balance. Fundamentals include demand, which depends largely on American consumers and the European Union. The consumer confidence index and GDP growth indicators show that the economies of Europe and the United States have not actually declined after two years of interest rate hikes. Then the euro has already started a rate cut cycle, and the US dollar will also enter a rate cut cycle in September. Rate cuts will stimulate consumption and investment. The European and American economies, which have not declined during the rate hike cycle, are even less likely to decline in the face of the positive stimulus of rate cuts.

We can say this: Those who think that the US economy will collapse this year or next year, or the Japanese economy will collapse, are fools. Those who think that our economy is healthier than Japan's or the US's are reflecting their standpoints on economic judgments, not the conclusions drawn from objective economic research.

【Author: Xu Sanlang】